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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 03/07/2017 (18:42)
PE drivers

Prices settled unchanged in June. Suppliers did not respond to the expectations of a June decrease and have since announced they will pursue the delayed $0.03/lb increase in July.

Market Overview

Formosa Plastics Corp. The USA has declared force majeure on polyethylene and polypropylene resins after a power outage on June 25 at its production site in Point Comfort, Texas. It is expected to be shut down for ten days or longer.

Dow is expected to begin new LLDPE production in early August and CP Chem is close to completing their plant construction for HDPE and LLDPE in Q3.

HDPE injection molding remains very tight. Several plant outages and an upcoming 80-day Nova turnaround will further contribute to this problem.

Large quantities of any resins have not appeared in the secondary markets. Prices are lower than April and have since firmed in the second half of May.

Suppliers are expected to try to increase July off grade prices to help push the July increase.

Spot ethylene declined this week near $0.21/lb, down $0.09/lb from the April peak.

June exports finished weaker than expected. Lower availability and higher prices kept traders from participating.

Feedstocks

Ethylene: Spot prices dropped nearly $0.09/lb in May. There are very few buyers in the trading sector. Lower prices can be expected until production cuts are introduced.

Naphtha: Prices declined again this week another $10/mt to $400/mt, in sync with lower oil prices. Cost to produce the naphtha pellet is near $0.44/lb.

PE Outlook and Suggested Action Strategies

30 Days: After the Formosa FM announcement, expect a very strong effort from the resin suppliers to drive the July $0.03/lb increase. Off grade offers for July are now $0.03/lb higher. HDPE injection resin buyers should cover needs early and continue to communicate requirements to suppliers. 60/90 Days: It is reasonable to expect $0.03/lb price erosion in the next 60-90 days if oil remains below $45/bbl. There is nothing present that could drive an increase outside a major disruption. Oil prices, soft global demand and over supply will be the key drivers for the second half of 2017.

PP Drivers

Two polypropylene Force Majeure announcements were made in the past week.

Market Overview

Formosa announces FM on June 27th resulting from a weather-related power outage. Their two homopolymer lines could restart before this weekend, but the copolymer lines will have to wait until their ethylene units are back up.

A day later, on June 28th, Ineos announces FM due to their polypropylene impact copolymer line going down from an equipment malfunction. Ineos is addressing the problem and will be communicating more details as quickly as they can.

Prior to both Force Majeure letters, on June 26th, LBI had announced a $0.03/lb price increase (margin expansion) letter for August 1st implementation.

So far, none of the other PP producers have supported the LBI $0.03/lb letter, and unless they do, it will be very difficult for LBI to implement.

We are not convinced that market conditions support margin expansion whether others join in the effort or not.

Certainly, demand has been stronger in May and June. Spot prices are up and availability is tighter. But, with these recent events, including the PDH outages, the market has not had any significant response. This is a good indication that the market is in decent balance.

Propylene

Spot PGP last traded at $0.38/lb.

Spot RGP is valued at $0.25/lb.

EIA inventories were stable.

RTi PP Outlook and Suggested Action Strategies

30 Days: July PGP prices look to move higher by ~$0.02/lb. If spot PGP comes off more in the next two weeks, there is an outside chance July PGP would roll flat. PP prices will follow PGP. 60/90 Days: Flat to down prices are expected for PGP after July. If PP demand has strength, which we question, then PP prices could see margin expansion. Currently, our expectation is for PP prices to follow PGP.

PS Drivers

PS prices rolled over for June; Producers have announced a $0.06/lb decrease for July.

Market Overview

The rise in imported PS from Latin America and Asia continues to put downward pressure on domestic producers.

Several PS buyers were seen holding out for lower prices as both April and May saw feedstock price decreases.

The potential for flat-to-lower PS prices for July may pique the interests of buyers, which may end the recent slowness in demand.

Feedstocks

Benzene (BZ): Spot prices continue to track the change in crude oil. July contract price expectations are mixed. The import arbitrage from Europe and Asia into the US appears to have closed.

Styrene Monomer (SM): SM spot prices started the week in the mid $2.40’s/gal, but have since edged up towards the mid $2.50’s/gal. SM pricing is still heavily influenced by price activity in Asia, which is currently experiencing an uptick in demand as crude oil prices inch higher.

Butadiene (BD): Spot prices continued to move lower this week due to strong supplies, weak demand, and lower prices in Asia. July contract nominations have narrowed to down $0.14/lb to down $0.15/lb.

RTi PS Outlook and Suggested Action Strategies

30 Days: July has a potential for a price decrease. Continue to buy JIT. 60/90 Days: Historically, producers have often raised prices in August, but unless the BZ price direction has a dramatic upward shift, an increase will be difficult. Keep an eye on BZ prices, and buy sparingly until the outcome becomes clearer.

PVC Drivers

Spot ethylene pricing fell $0.025/lb over the past week as PVC pricing was flat for the month and an outage impacted ethylene demand and chlor-alkali production.

Market Overview

RMC for PVC is expected down by $0.01/lb in June as a drop of $0.02-0.03/lb expected in the ethylene contract will be offset by an increase in chlorine of $0.005-0.01/lb.

PVC pricing is flat for June, with lower RMC (tempered by chlor-alkali outage) combined with an inventory built in May adding to supply as reasons to press for Q3 decreases.

Offsetting that effort will be real demand, which, while higher in May, has seen some opposition from lower housing starts and flat overseas pricing.

Low oil prices continue to support lower naphtha and ethylene feedstock pricing to PVC globally.

Supply & Demand

Supply: June output is expected higher than May as a lightening induced outage may have a limited impact on upstream chlor-alkali with a restart in early July. Tropical storm Cindy had minimal impact beyond storm induced power outages. Year-over-year inventories are 29% higher in May.

Demand: Exports were down 14% year-over-year in May as global pricing remained at lower levels along with mixed demand from seasonal holiday and weather issues.

Feedstocks

Chlorine: Spot pricing was flat this week, sitting at near historic highs due to tightened supplies and strong summer demand.

Ethylene: Spot prices dropped nearly $0.09/lb in May. There are very few buyers in the trading sector. Lower prices can be expected until production cuts are introduced.

RTi PVC Outlook and Suggested Action Strategies

30 Days: Continue to buy as needed, looking for opportunities to take advantage of downward pressure from oil and ethylene globally as supplies improve. 60/90 Days: Supplies will continue at higher levels in Q3 for ethylene and PVC with chlorine output recovering from maintenance and outage. The supply/demand balance will determine the degree to which lower pricing is realized in Q3. Buy as needed.

PET Drivers

June PET manages to move $0.005/lb lower, while July expectations are mixed.

Market Overview

Heading into July, PET raw material costs are still experiencing downward pressure from lower crude oil prices, but market fundamentals are now applying price pressure in the opposite direction.

Domestic PET supply availability has been deemed sufficient-to-tight, despite operating rates in the high 80%’s and high import volumes.

PET demand has started to show improvements from the summer bottling season as well as from other sectors such as carpet and thermoformed sheet.

WTI crude oil prices started the week at just above $43/bbl, but have since climbed to over $45/bbl. Refinery rates have dipped 1.5%, now at 92.5%.

Feedstocks

Paraxylene (PX): The summer driving season has been lackluster, keeping demand for upstream mixed xylenes (MX) stable. Lower crude oil prices, alongside decent supply availability for both PX and MX, have been keeping PX prices low.

PTA: Current expectations for July PX/PTA contracts are bearish, with decreases anticipated in the $0.01/lb to $0.02/lb range. Spot prices in China have started to ease lower in response to downward movements in crude oil prices.

MEG: Domestic spot prices were assessed stable from last week, although contracts are still expected to see a $0.02- 0.04/lb increase for July, based on a number of producer announcements. Chinese MEG markets were somewhat volatile with decent trading activity.

RTi PET Outlook and Suggested Action Strategies

30 Days: July PET is going to be influenced by a mixed bag of price drivers, ranging from slightly lower PET prices in Asia, crude oil near $45/bbl (but inching higher), bullish supply/demand balance, potentially lower PX/PTA, potentially higher MEG, and increase pressure from shortened supplies of comonomers. As of now, a price rollover is reasonable for July; buy as needed. 60/90 Days: Monitor crude oil prices as well as the markets in Asia to help determine the forward PET price direction. Prices are likely to start rising over the next few months. The safer bet is to buy sooner rather than later.
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